Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICRA Ltd. (ICRA), an associate company of international rating agency Moody's Investors Service, is the second largest credit rating
agency in India. Due to ongoing economic concerns, there has been slowdown in credit off-take in the form of bank loans and debt
market activities which has impacted the revenue and profitability of the company. We therefore expect consolidated revenue
CAGR of 6% for next two years for the company. Despite short term headwinds, we are very positive on the huge long term
opportunity for the credit rating sector on the back of development in debt market which is at nascent stage in India. We believe
that all the short term negatives (i.e. lower rating revenue growth and pressure on profitability) are already discounted in the stock
price and there is a good upside potential from here. We therefore initiate coverage with BUY recommendation.
Sluggish debt issuance to impact revenue in short term
The Corporate Debt Rating (CDR) segment of the company reported
revenue of INR 713mn in FY11 (~55% of standalone revenues) at 4
year CAGR of 16.35%. This was largely on the back of strong volume
growth in corporate debt market in the form of corporate bonds,
debentures, short term corporate instruments (CPs, CDs etc.).
However, unfavorable current financial and economic conditions
in India resulted in slower growth issuances of debt market
instruments offerings that have impacted the overall revenue. We
expect rating revenue from ICRA's CDR segment to witness a CAGR of
6.33% in next two years and report revenue of INR 806mn in FY13.
Bank credit growth to drive revenue in BLR segment
Since the implementation of Basel II norms in FY2008, rating
revenue from Bank Loan Rating (BLR) segment of ICRA now
contributes ~45% (INR 580mn in FY11) of its overall rating
revenues from NIL. This was on the back of 2 year CAGR of 23.47%
majorly on account of increased coverage of existing bank loans
and remaining from fresh issuances of loans. According to the
industry sources, 65% of the outstanding bank loans have already
been rated. We, therefore, don't see any major upside in revenue
growth from further coverage of outstanding bank loans. We expect
ICRA's Bank Loan Rating (BLR) segment revenue to grow marginally
at INR 595mn in FY13 on the back of lower growth contribution
from expanding coverage of outstanding loans. Also, increased
coverage of small size loans has been putting pressure on the
overall profitability. Despite short term headwinds, we are positive
about the long term potential on the back of expected revival in
economic growth momentum in next 1-2 years that would stimulate
expansion in bank lending to the corporate sector and
correspondingly add to BLR segment revenues.
Strong competitive positioning, courtesy Moody's
ICRA is an associate company of Moody's Investors Service (28.51%
stake in ICRA) which is amongst the largest international credit
rating agencies in the world. ICRA has established strong market
presence on back of high value technological, strategic and
methodological support provided by Moody's. Company is the
second largest player in Indian credit rating industry in terms of
market share. The alliance also provides ICRA with access to
Moody's global research base and in turn benefitting ICRA's inhouse
research capabilities.
Other businesses stay the course
ICRA's other businesses (~33% of consolidated revenue in FY11)
include consulting services, outsourced & information services,
and professional & IT services. With increased scale of businesses
by addition of newer clients and increased revenue from existing
clients, we expect the combined other businesses to achieve a
turnover of INR 766mn in FY13 at 2 year CAGR of 9.65%.
Valuation and Outlook
Despite short term headwinds, we are very positive on the huge
long term opportunities for the credit rating sector on the back of
development in debt market which is at nascent stage in India.
ICRA, being the second largest player in the industry is positioned
strongly on back of years of rating experience across various
industries along with high brand recognition, good service quality
and strong industry network. We believe that all the short term
negatives are already discounted in the stock price which is
currently trading at 15.51x FY12E adj. EPS against average 5 year
historical multiple of 22.43. We have valued the stock using
discounting cash flow (DCF) and relative EPS multiple method
and arrived at an average 15 months target price of INR 1,038. We
initiate coverage with BUY recommendation.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ICRA Ltd. (ICRA), an associate company of international rating agency Moody's Investors Service, is the second largest credit rating
agency in India. Due to ongoing economic concerns, there has been slowdown in credit off-take in the form of bank loans and debt
market activities which has impacted the revenue and profitability of the company. We therefore expect consolidated revenue
CAGR of 6% for next two years for the company. Despite short term headwinds, we are very positive on the huge long term
opportunity for the credit rating sector on the back of development in debt market which is at nascent stage in India. We believe
that all the short term negatives (i.e. lower rating revenue growth and pressure on profitability) are already discounted in the stock
price and there is a good upside potential from here. We therefore initiate coverage with BUY recommendation.
Sluggish debt issuance to impact revenue in short term
The Corporate Debt Rating (CDR) segment of the company reported
revenue of INR 713mn in FY11 (~55% of standalone revenues) at 4
year CAGR of 16.35%. This was largely on the back of strong volume
growth in corporate debt market in the form of corporate bonds,
debentures, short term corporate instruments (CPs, CDs etc.).
However, unfavorable current financial and economic conditions
in India resulted in slower growth issuances of debt market
instruments offerings that have impacted the overall revenue. We
expect rating revenue from ICRA's CDR segment to witness a CAGR of
6.33% in next two years and report revenue of INR 806mn in FY13.
Bank credit growth to drive revenue in BLR segment
Since the implementation of Basel II norms in FY2008, rating
revenue from Bank Loan Rating (BLR) segment of ICRA now
contributes ~45% (INR 580mn in FY11) of its overall rating
revenues from NIL. This was on the back of 2 year CAGR of 23.47%
majorly on account of increased coverage of existing bank loans
and remaining from fresh issuances of loans. According to the
industry sources, 65% of the outstanding bank loans have already
been rated. We, therefore, don't see any major upside in revenue
growth from further coverage of outstanding bank loans. We expect
ICRA's Bank Loan Rating (BLR) segment revenue to grow marginally
at INR 595mn in FY13 on the back of lower growth contribution
from expanding coverage of outstanding loans. Also, increased
coverage of small size loans has been putting pressure on the
overall profitability. Despite short term headwinds, we are positive
about the long term potential on the back of expected revival in
economic growth momentum in next 1-2 years that would stimulate
expansion in bank lending to the corporate sector and
correspondingly add to BLR segment revenues.
Strong competitive positioning, courtesy Moody's
ICRA is an associate company of Moody's Investors Service (28.51%
stake in ICRA) which is amongst the largest international credit
rating agencies in the world. ICRA has established strong market
presence on back of high value technological, strategic and
methodological support provided by Moody's. Company is the
second largest player in Indian credit rating industry in terms of
market share. The alliance also provides ICRA with access to
Moody's global research base and in turn benefitting ICRA's inhouse
research capabilities.
Other businesses stay the course
ICRA's other businesses (~33% of consolidated revenue in FY11)
include consulting services, outsourced & information services,
and professional & IT services. With increased scale of businesses
by addition of newer clients and increased revenue from existing
clients, we expect the combined other businesses to achieve a
turnover of INR 766mn in FY13 at 2 year CAGR of 9.65%.
Valuation and Outlook
Despite short term headwinds, we are very positive on the huge
long term opportunities for the credit rating sector on the back of
development in debt market which is at nascent stage in India.
ICRA, being the second largest player in the industry is positioned
strongly on back of years of rating experience across various
industries along with high brand recognition, good service quality
and strong industry network. We believe that all the short term
negatives are already discounted in the stock price which is
currently trading at 15.51x FY12E adj. EPS against average 5 year
historical multiple of 22.43. We have valued the stock using
discounting cash flow (DCF) and relative EPS multiple method
and arrived at an average 15 months target price of INR 1,038. We
initiate coverage with BUY recommendation.
No comments:
Post a Comment